Turkish Corporate Debt Manageable, So Far

By Shuli Ren

The Turkish lira has slid over 20% in the past year and is expected to continue with the slump, as the central bank is seen reluctant to raise benchmark rates to prop up the currency.

The Turkish corporate sector holds a big chunk of debt in hard currencies. Corporate foreign currency liabilities stood at around $260 billion in October 2013, or 30% of the GDP, according to Capital Economics.

The cost of servicing foreign currency debt rises as lira depreciates. Will we start to see defaults?

For the time being, Turkey is OK, because Turkish companies also hold foreign currencies as investments. Here is Capital Economics:

There are a couple of factors which mitigate the corporate sector’s exposure to swings in the exchange rate. First, Turkish companies also have foreign currency assets, whose lira value will rise as the exchange rate weakens. However, these assets amount to $95bn, leaving the corporate sector with a negative net foreign currency position of around $165bn (almost 20% of GDP). The second factor is that some FX debtors will also have FX incomes. Indeed, under current legislation, foreign currency lending by local banks is restricted to companies with FX receipts or to large corporates.

Disclaimer: the situation is only OK for now. After all, Turkish corporates are net borrowers in the hard currency bond market.

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JANUARY 18, 2014 7:44 A.M.

alex K. wrote:

01/18/14
Shull Ren,
How could you possibly say anything good about the ETF TUR?
Since hitting its 52 week high of $77.40 on 05/22/13 it is down an incredible -42.7%.
The lower moving average is constantly below the higher moving average and that is certainly "BEARISH".
This ETF is a blind bet that will never regain its once hot hand.
Investors/Traders should avoid this "LOSER".

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Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.